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Selective Business Ethics

Corporate Research E-Letter No. 59, May-June 2006

SELECTIVE BUSINESS ETHICS: HOW WAL-MART AND OTHER LARGE CORPORATIONS PICK AND CHOOSE WHEN TO BEHAVE PROPERLY

By Philip Mattera

For the past 52 years, Fortune magazine has been publishing a list of the largest U.S. corporations, an annual chance for chief executives to brag that “my revenue is bigger than yours.” For the past seven years, Business Ethics magazine has issued another kind of ranking—a list of what it calls the “100 Best Corporate Citizens”—that promotes virtue over size in the perennial game of corporate comparisons.

The Business Ethics list, the 2006 version of which appeared recently, has become a leading scorecard in the field of corporate social responsibility, or CSR (increasingly used as an abbreviation for corporate sustainability and responsibility). CSR has evolved from a rallying cry of business critics to a fashionable concern among corporate executives eager to demonstrate that high-mindedness can co-exist with the pursuit of profit. Many of the companies cited by Business Ethics consider it a badge of honor, putting out press releases touting this accomplishment.

Yet when one looks at the companies on the Business Ethics list, it is easy to be baffled at the real meaning of CSR. Some of the firms may have done laudable things, but the list is riddled with companies that have significant blemishes on their record when it comes to environmental matters, labor practices or treatment of customers. The likes of Wal-Mart and Big Oil have not yet made the cut, but that may be only a matter of time.

NOT SO CLEAN

Business Ethics compiles its list using data on corporate social performance in eight categories—community, diversity, employee relations, environment, etc.—from the Socrates database produced by KLD Research & Analytics. That information is then processed quantitatively using methodology developed by Sandra Waddock and Samuel Graves of the Carroll School of Management at Boston College. Unfortunately, the magazine says nothing about that methodology, so the reader is confronted with a statistical black box. An article accompanying the list provides scanty details. Thus, one must essentially take the rankings at face value.

The first thing that stands out is that the list is top heavy with high-tech firms, including Hewlett-Packard (No. 2), Advanced Micro Devices (No. 3), Motorola (No. 4), Cisco Systems (No. 8), Dell Inc. (No. 9), Texas Instruments (No. 10), and Intel (No. 11). The magazine says this is, in part, because “most top tech companies do well on environmental issues.” That claim would come as a surprise to groups such as the Silicon Valley Toxics Coalition (SVTC), which has for years been pointing out that high-tech industry is far dirtier than its clean image. The electronics industry is a heavy user of toxic chemicals, which have a way of seeping out into the environment, resulting in a proliferation of Superfund toxic waste sites in places such as Silicon Valley.

In recent years, SVTC has also been looking at another environmental problem caused by high tech: the growing volume of e-waste generated when obsolete computers and other devices—with toxic material inside—are thrown away. SVTC’s Computer Take Back Campaign has been pressuring the major tech companies to take responsibility for recycling. While Dell and Hewlett-Packard have responded positively to the pressure, the campaign faults companies such as Apple (No. 25 on the Business Ethics list) for resisting.

Also difficult to accept is the other reason given by Business Ethics for the prevalence of tech firms at the top of the list: high scores on employee relations, including workplace health and safety. The same toxic chemicals that pollute communities around electronics plants have taken a toll on the health of workers inside the plants. For instance, in 2004, IBM (No. 41 on the Business Ethics list) paid an undisclosed amount to settle lawsuits brought by about 50 current and former workers who were suffering from cancer that they attributed to workplace exposure.

As for the aspect of employee relations relating to unions, Business Ethics fails to mention that the high-tech firms on its list are all largely unacquainted with collective bargaining. The electronics industry has resisted unionization of its domestic workforce for decades. A Wall Street Journal reporter once took a job incognito at a Texas Instruments plant and found workers there so intimidated that they panicked at the mere mention of unions. At the same time, these same companies have not hesitated to move much of their production to foreign sweatshops.

In recent years, the industry has also been moving high-level technical, research and design functions abroad to low-wage havens such as India—much to the detriment of U.S. workers. IBM, now focused on computer services rather than hardware, has increased the size of its Indian workforce to 43,000. Any owner of a Dell computer knows that a call to tech support is likely to be answered by someone sitting in Bangalore.

TAKING TAX BREAKS

U.S. high-tech companies are not offshoring everything, but when they build new domestic operations they often engage in another practice that should raise questions in the minds of the ethics monitors: extorting tax breaks and other subsidies from state and local governments. Recently, the Albany Times-Union reported that New York State officials may be preparing a subsidy package worth $1 billion to persuade Advanced Micro Devices to build a new chip fabrication plant in Saratoga County.

This would be the latest in a long series of generous “incentives” that semiconductor and computer producers have taken from governments across the country. In 2004 Dell got a package worth up to $267 million when it agreed to locate a new assembly plant in Winston-Salem, North Carolina. The deal, which is being challenged in a lawsuit brought by the North Carolina Institute for Constitutional Law, mirrored a package Dell received in 1999 in connection with the construction of a plant in Nashville. When the city of Austin, Texas turned down Dell’s demand for long-term property tax breaks, the company moved its headquarters to the suburb of Round Rock, which agreed to 20 years of abatements.

Intel has avoided hundreds of millions of dollars in local taxes on its facilities in New Mexico, Arizona and Oregon by using complex financing schemes involving industrial revenue bonds as well as straightforward abatements and exemptions. All these subsidies weaken the fiscal condition of local governments, making it harder for them to pay for services such as education and public safety.

SHARKS AND PREDATORS

High-tech is not the only industry that accounts for some questionable entries on the Business Ethics list. Take financial services. Wells Fargo & Co. (No. 16) scores high on workplace diversity, but it has been accused of mistreating its poorer customers—many of whom are people of color. For the past several years, Wells has been the target of a campaign by the community-organizing network ACORN over its predatory lending practices. ACORN charges Wells with a slew of abusive practices, such as charging higher interest rates than a borrower’s credit warrants and imposing excessive mortgage origination fees. This spring, for the third year in a row, ACORN activists—including some carrying inflatable sharks—demonstrated outside the Wells Fargo annual meeting. Also protesting were supporters of Rainforest Action Network (RAN), which has charged the bank with financing environmentally destructive infrastructure projects in developing countries.

RAN’s Global Finance Campaign has succeeded in getting Citigroup Inc., No. 62 on the Business Ethics list, to adopt guidelines that promote more environmentally responsible projects, but the financial giant is still widely criticized for the predatory lending practices of its subsidiary Associates First Capital. More surprising is the appearance of Freddie Mac, No.38 on the list. The mortgage finance entity has been embroiled in a major accounting scandal. In April it agreed to pay $3.8 million to settle charges relating to illegal campaign contributions.

Many other examples of companies with ethical lapses can be found on this list of supposedly exemplary corporate citizens. Johnson & Johnson (No. 12) refuses to join the 300 other companies that have signed the Campaign for Safe Cosmetics pledge not to use toxic ingredients. NIKE Inc. (No. 13) has adopted some reforms in response to years of criticism over labor practices at its overseas suppliers, but activist groups continue to cite abuses. General Mills (No. 14) sells food products with unlabeled genetically modified ingredients.

A question can even be raised about the company at the very top of the Business Ethics list: Green Mountain Coffee Roasters. The company seems to have a strong commitment to CSR, but one of its main customers is Exxon Mobil, which sells Green Mountain coffee at many of its service stations.

NO COMPANY IS PERFECT, ESPECIALLY WAL-MART

The fact that the corporation dubbed most ethical does a great deal of business with a company that is widely seen as one of the least ethical—along with the many mixed track records described above—puts into question the legitimacy of the concept of CSR.

Wait, you may say—no company is perfect. Maybe so, but should we be honoring some of those rather imperfect entities as “the best corporate citizens?” We certainly don’t use such limited standards when it comes to real citizens. Do we honor embezzlers because they recycle their newspapers? Do we overlook child abuse because the parent contributes to the United Way? People are expected to follow all laws and ethical norms—not only those that are convenient to obey. Why not apply the same standard to corporations?

Which brings us to Wal-Mart. Having been subjected to probably more criticism than any other single company (including two national pressure campaigns devoted exclusively to it), Wal-Mart is now changing its stripes—or at least some of them. Last fall, the company announced a sweeping set of voluntary environmental measures that are supposed to sharply decrease its energy consumption, reduce its waste production and expand its recycling efforts. The giant retailer also said it would pressure its suppliers to adopt greener practices. More recently, there have been reports that Wal-Mart is making a big push into organic food products, sustainably fished salmon and fair trade coffee.

What the company has not announced are any significant changes in its labor practices. Wal-Mart remains adamantly anti-union and continues to offer low pay and limited benefits. It strongly opposes living wage initiatives. The fact that nearly half the children of its U.S. employees are uninsured or have to get coverage from taxpayer-funded programs is not likely to change any time soon. There is no evidence as yet that the company has eradicated the tendency of store managers to force employees to perform extra work off the clock. Slick TV ads notwithstanding, it remains to be seen whether Wal-Mart has significantly addressed charges of sex and race discrimination in its domestic workplaces. Given the company’s obsession with cutting costs, there is every reason to believe that sweatshop conditions will persist in the factories of its foreign suppliers.

RESISTING CORPORATE GREEN HYPE

The divergence between Wal-Mart’s environmental reforms (assuming they turn out to be more than greenwash) and its retrograde labor policies symbolizes the selective business ethics that prevail today.

Like Wal-Mart, much of Corporate America claims to be going green. Sometimes this is the result of pressure, such as RAN’s successful campaigns against firms such as Home Depot, Citigroup and Goldman Sachs. Sometimes it is for public relations purposes, such as General Electric’s “eco-imagination” ad blitz that came after years of resisting responsibility for cleaning up PCBs in the Hudson River. And sometimes it is because companies have decided they can make money selling alternative products or technologies, such as Toyota’s promotion of hybrids. While some executives may claim to be following their conscience, the fact is that corporate environmentalism today is deemed good for business.

The same cannot be said about enlightened employment practices. Most big companies still hold down wages, restrict medical coverage, downgrade retirement benefits, pay inadequate attention to workplace health and safety, engage in downsizing and offshoring, and, of course—fight unionization or demand concessions from unions already in place. Chief executives at firms such as Wal-Mart claim they cannot afford to make major improvements in working conditions—even if they will result in higher productivity—yet they are now willing to spend heavily on environmental change.

It may take a major resurgence in the labor movement to get big business to give the same priority to workplace reforms that it now accords to environmental matters. In the meantime, we shouldn’t get too carried away with the corporate green hype. And we certainly shouldn’t be giving good citizenship awards to companies that view ethics as a menu from which to choose only that which is most palatable.

Violation Tracker

A database on corporate misconduct from the Corporate Research Project of Good Jobs First.